AAON, Inc. (AAON) Earnings Call Transcript & Summary

Great. Thanks, everyone. Up next, we have AAON. We don't cover them, but it's a very interesting company, near and dear to my heart with HVAC. Great story, tremendous growth over the years. We have Rebecca Thompson, Gary Fields and Joe Mondillo. So I'll pass it off to you guys and go through a little presentation then we'll do Q&A.

Okay. Perfect. So we also brought Matt Tobolski from BasX, our new acquisition with us. So I want to start off kind of give you a little bit of an overview of the company. We are a semi-custom manufacturer primarily of packaged rooftop equipment. We also make indoor air handlers and condensing units, all for the commercial and industrial sector. We have little to no presence in the residential market. Our new acquisition BasX addresses central data centers and clean rooms primarily, with a little bit of involvement in custom air handling equipment. So we've been a leader in this semi-custom market, really established that category many years ago, about 1988. Norm Asbjornson, the founder of the company was recruited to come to Oklahoma to run the John Zink air conditioning company. Very soon thereafter, a private equity firm attained all of John Zink, but they really did it for another major portion of the company. They wanted to spin off the air conditioning company. So Norm took that initiative and spun off the air conditioning company and established AAON. So that was in late '88. At that time, there were 2 customers for the company that was McDonald's and Walmart. That was it. And they made up to 20-ton air conditioning units. But Norm had come from a very custom side of the company -- of the industry with Mammoth in Minneapolis. And he had exposure to the sales channel that had great expertise in selling custom air handling equipment, custom solutions. And he envisioned creating AAON to be a bridge between standard equipment and custom equipment and utilizing the capabilities of computerization as the foundation of how this was done, he was able to create a company that provided high-value equipment at a small premium. At the time of the establishment of AAON, there were only 2 real segments serving the market, standard and custom, and custom came at a premium of about 200% to 300% above standard. When Norm established this, he was able to do it with about a 15% to 20% premium over standard equipment. So this was a huge value proposition. The company was very small initially. Product portfolio, volume and so forth. Expanded the product portfolio over the years, and currently, we manufacture from 0.5 ton water-source heat pumps indoor to 2-ton packaged rooftop units, all the way up to 240 tons in all configurations, air source heat pump, water source heat pump, traditional air conditioning, traditional heating. We go up to these very large units. So it's a premium product in the aspect that we address certain application strategies that have not historically been served by the standard manufacturers. But these application strategies have become more necessary in today's environment. The pandemic really brought forth the fact that indoor air quality had a huge role to play in mitigating and minimizing the spread of coronavirus. And so these indoor air quality enhancements such as MERV 13 filters, increased ventilation rates, increased outside air dilution rates, all played into AAON's standard strategies that we have been offering for years. A lot of your standard manufacturers were not able to accommodate these things. So this has really moved AAON into the forethought of a lot of building owner operators now in that they all want to be responsible in how they address the potential spread of coronavirus in their buildings. All of these best practices with regards to these mitigation procedures were established by a peer group that serves on ASHRAE committees. That's the American Society of Heating, Refrigerating Air Conditioning Engineers. So ASHRAE came out with a 50-some-odd page, really a directive of how you go about doing this. And ultraviolet lights, increased ventilation, increased dilution, MERV 13 or greater filters were some of this. These require fan systems and space in the unit that were beyond what was available in some of these standard units. So this really moved AAON again to the forefront of people's thought process. Then the next thing that's really moved AAON towards the forefront of people's thought process is decarbonization. Currently, about 64% of all rooftop units manufactured in the world have some sort of carbon fuel heating included with the packaged rooftop. Well, with air source heat pump technology that we have developed, where we have cold climate capabilities with very good efficiency ratings. It's made our packaged rooftop units in air source heat pump configurations very desirable in a broad market focus. So our total addressable market is about 50x the size of AAON currently. We've had good organic growth. We have a very strong balance sheet, very little debt. The only debt we acquired was just recently when we made the acquisition of the BasX company. We paid for that mostly in cash, kind of exhausted our cash surplus that we had. So we're using a little bit of borrowings for operating capital. The company has had in recent years from 2012 to present a 7% compounded annual growth rate. And we believe that this is going to accelerate even more now because we've put good infrastructure in place. The demand is there, and we're beginning to get supply chain constraints, kind of the wrinkles ironed out a bit and our production rates picked up. The demand is very strong, though. We currently have 1.4 million square foot of manufacturing facility and 135,000 square foot state-of-the-art laboratory in our Tulsa headquarters campus. In Longview, Texas, we recently doubled the size of that campus, and we now have 485,000 square feet. Again, we recently acquired BasX in Redmond, Oregon. They also doubled the size of their manufacturing facility in the year that we negotiated to purchase them, now comprising 195,000 square feet. We have a small manufacturing facility in Parkville, Missouri that manufactures electronic components for inclusion in our units. It's about 51,000 square foot. So rooftop units comprise the vast majority of what we're doing. With BasX, we added a significant measurable vertical in data centers. Our parts business was about 8% of our total business last year, air handling units, condensing units, water-source heat pumps, clean room systems, those are all a few percentage points each. But we're dominated by rooftop units second largest vertical segment would be data center. We are predominantly a U.S. company, but we -- with -- again, with the acquisition of BasX, they had international business that now comprises a small single-digit percentage of our revenue. Product families, again, we go from 0.5 ton through 230-ton on water-source heat pumps. Those are in indoor configurations, outdoor configurations to outdoor air handling units, outdoor packaged rooftop units from 2 tons to 240 tons, self-contained indoor units up to 70 tons. And then BasX has solutions that really have no limit as to what they can do because they have customized solutions. We have significant participation in new construction, it's about 35% of our current revenue, but 65% of our revenue is in the replacement market. This has been an intended purpose to bias more towards the replacement market. A few years ago, when I took over leadership of the company, we were 50-50. We believe that the replacement market was a very strong area of growth potential. We put a lot of initiatives in place to make that happen, and we've advanced nicely to 65-35 with an end goal of 75% replacement and 25% new construction. Our backlog for many years was in the $50 million to $60 million range. When I came on board in early -- well, late 2016, early 2017, there were some things that I knew from my many years in the sales channel that we could do better at AAON that would enable us to accelerate sales. We did that, and we increased our production rate at the same time, but our ability to book orders was much stronger than our ability to produce orders in those earlier days. In 2018 and '19, we began to understand clearly what we needed to do with the manufacturing facility, and we added 100% or more addition in Longview and about 50% addition in Tulsa. And we continue to add that through 2020, and we were able to arrest that backlog growth while maintaining good revenue growth. So we got more in balance. '21 was another year of a different tail and that was that we had the infrastructure for manufacturing, and we had the demand in the bookings, but we were unable to produce for 2 primary reasons. One was absenteeism due to COVID and the other one was supply chain constraints. Now in the very tail end of '21, in December, we began to recover from these and kind of ironed out some of those wrinkles. January, February and March so far, we've produced at a very good rate, but our demand is extraordinary still. We have the most attractive lead times in the entire industry right now. In general, our lead times are about half of what our peers are. Sometimes they're 1/3 of what our peers are. In May of 2020, Norm Asbjornson took his final step away from leadership, and that's when I was selected as the CEO. I had been the President since late 2016. I'd been on the board since 2015, and I was a consultant to the company from 2013. So we went from a very entrepreneurial-led company and we didn't lose those characteristics of self thought, but we have a more structured team-oriented enterprise now. And the leadership development is very deep into the company. We have much higher efficiency operating now with a very lean cost structure. And we've managed to do all of this minimizing the amount of red tape. We continue to focus on our semi-custom high-premium quality product offering. And then our compensation structure rewards every employee with ownership. Virtually every AAON employee that's been there, say, 6 to 9 months or longer is eligible for equity grants, which are done on an annual basis. We just did those earlier this week. So we're expecting the execution to improve with the company because of a lot of these systems and people have matured in their roles and responsibilities. And supply chain is straightening out a lot of the wrinkles, and we have adequate manufacturing infrastructure and headcount to execute on this.

Should we start some Q&A?

Ready to go.

Okay. Great. Thanks. You guys are, I think, great story that's undercovered and so it looks really good. From an end market perspective, you said demand remains very strong. Obviously, that's reflected in your backlog, which end markets are you seeing the most strength in, which ones are maybe still coming off the bottom a little bit?

Well, I would say that lodging is probably at its lowest point in several years. Surprisingly though, it didn't -- I thought it might go away entirely. It did not. And I tell you what, one of the driving factors is the indoor air quality improvement mitigation procedures. So if you have an existing hotel and you don't have these indoor air quality mitigation procedures in place, then you're not going to be able to attract visitors. And so we've seen several existing hotels upgrade that's one of the replacement market areas that we have accelerated. Manufacturing has been relatively strong. Office has weakened a little bit. When we categorize commercial, we include in that such items as big box stores, grocery stores, e-commerce, warehousing and so forth. And that's been a huge growth area for us. Surprisingly, we've done very well with Nashville chain grocery stores, building more stores, improving existing stores, same indoor air quality story. But the e-commerce is just outrageous how strong that market is. Health care has improved a lot, and it really fit our product portfolio real well. So when the pandemic occurred, there were a lot of urban hospitals that had reasonable capacity, but the suburban and rural community hospitals were very underserving of their markets. And it was causing people to travel many hundreds of miles sometimes in order to get health care. So we saw a resurgence in reestablishing, renovating or building new smaller, more distributed health care facilities. This has been a very, very strong market for us. Educational surprisingly has stayed strong. And again, we're seeing 2 things here. One is some of the stimulus money is finally flowing into that vertical sector. we're seeing school districts that say, "Hey, I got this money from the federal government. Primary objective is to improve indoor air quality for our students. And so we're seeing both change-outs and new construction in the school business. So that's pretty much what I see on the margin.

And the carriers talking about $190 billion is stimulus. They're kind of tracking it. They said that it has yet to really make its way into the system, but it's going to have to be allocated in the next 2 to 3 years. Is that -- do you guys track that very closely and how would you characterize what's behind us? And it's hard to tell what's behind us and what's in front of us?

Well, I don't track it the carefully, probably as carrier, I don't have those kind of resources. I have to be a little bit more grassroots with it. I have a very close relationship with our sales channel, having come from that side myself for 32 years. And I maintain very close contact with them. I had a meeting last week, had 12 of the top players across North America there. We've polled them on this exact question about the stimulus money and the overwhelming response was it is just now reaching our end users at just the very first tip of the iceberg. Many school districts are going ahead with their planning for replacement because they have this money either in the bank or committed to be in the bank in the very near term.

Right. And within lodging, just interested in the IAQ dynamic, are you saying that they're actually replacing more equipment? Or there -- are they replacing just the indoor air quality aspects like filters and things and you guys are seeing some of that because you go in and you put the packages in or something like that?

We're seeing an awful lot of the equipment itself replaced because if you need to increase the amount of outside air you're bringing into a building, it takes more capacity to do that. In some cases, they have competitors' equipment that their fan systems weren't capable of overcoming the higher pressure drop with the MERV 13 filters. So our fan systems have always been able to accommodate that because of the type we use. So we're seeing them changing out so that they can get MERV 13 filters, they can get increased outside air quantities, which requires capacity. So we're seeing a lot of replacements on those 2 factors right there.

Those are most of -- they're doing those 2 things. It's higher-grade filters, which run the machine harder anyway. And then more air exchange, which requires more cooling...

And most of them are adding UV. The UV, it doesn't do a very good job of in-transit kill because the dwell time is not adequate to do that. But you've got this higher degree of filtration that tracks this virus on the filter. And so they don't want the people changing out the filters to be exposed to it. So the UV is primarily killing the virus inside the unit where it's been trapped. That's what we're seeing is the primary use of it.

And when you talk about the commercial market, where is -- is data center a -- will be data center be a separate part of that pie going forward? Or is that inside commercial?

Well, I think data center for now is going to be in commercial, but I think it's going to be a significant vertical for us with the acquisition of BasX. Our participation in data center prior to this acquisition was pretty minimal. We had 2 or 3 customers that do these shipping container style modular data centers and our long view product has been applied on those extensively. We have 2 customers that use this exclusively. And then those same 2 customers have some brick-and-mortar facilities, and we were providing HVAC equipment for humidity control and pressurization of the hauls, but that's just to support structure to it. The main data haul cooling was done by a BasX style equipment, and that is a new vertical for us to be confident with.

So let's talk a bit about how the equipment differs. You said clearly, your equipment was different than their equipment. There's also the stuff that Vertiv does and JCI bought Silent-Aire. How does the BasX equipment compare functionally to those competitors? It's been more of a niche market over time, but it's clearly everybody wants to be there now. So it's...

I'd like for Matt to answer that questions.

Yes. Certainly, the data center market compared to sort of the legacy AAON product differ sort of in the, I'd say, kind of custom nature but it's custom at volume. And so it's not necessarily going to fit in the kind of the box pegs kind of issue with what AAON currently has in their reservoir. And so it's basically looking at, hey, how do we take this large-scale data center provide a cooling solution very finely tuned to that application at scale. And as a company, we've grown up as a pure custom manufacturer with a lot of automation and process that allows us to be able to kind of respond to a custom product and a quick pricing configuration and deployment. And so as we get into the data center market or as we've been in the data center market, but kind of continue to expand the scale of what we do, it's really leveraging some of the great things we do as BasX and some of the great things that AAON has an engine and that we can take these products that we've historically deployed as BasX alone and can now basically take the added horsepower. We have a lot of synergies from the equipment and the process of manufacturing between the BasX factory and AAON factories. So this, from a synergistic perspective provides a huge growth potential to be able to take some of the same customers and really expand the opportunities and kind of our reach within that market.

So what is so -- what are the parts that are customized? And what are the parts that are -- my guess is you have like a common platform and then you have to be much more bells and whistles around kind of that common platform. Is that -- how does -- how is it technically different?

Fair question. So when we say custom, the general build philosophy, right? So how we build a base, how we build a cabinet. It's customed to a user, but all that automation is built in the back end. So it's not really hard for us to say this is going to be 102.5 inches long. That doesn't hurt our system. Our system is just going to basically deploy that automated release of production parts. So then inside that cabinet, what we do, especially in a data center customer, where they're operating the equipment 87, 60 hours a year. So 24/7 every day of the year, they're going to be running this equipment, being able to custom-tune that piece of equipment to that user's needs from a performance and an energy consumption perspective is where that customization really comes in. So fine selecting the fan, the coil exactly how the configurations to deploy in that space provides a huge efficiency gain from an operations perspective for the customer. And with the engine we have built, it's not hard for us to make those tweaks that's really where our engine is built around to be able to kind of fine-tune that box.

Well, one of the attractive things for us, there was a lot of attractive things with BasX, but one of the attractive things as a manufacturer was that they manufacture their own fans, and they tailor those fans down to the quarter of an inch in with for those exact scenarios. So someone says, I need 16,345 CFM at 1.66 inches of static pressure, they can design the fan to do specifically that. As opposed to a lot of other manufacturers would take a standard with fan that would operate at a less efficient point, and they would speed it up or slow it down in order to meet that point, but it'd be at a less efficient operating point. So this allows the fan itself to be manufactured at the absolute peak of efficiency for that specific application.

And touch on that, too, one of the -- again, going to the automation aspect of it, there's no cost impact for that. So if you're going to a third party looking for advanced technology to do what Gary is describing, it's a special order product. It's going to kind of fall outside the boundaries of how that manufacturer would normally deploy and therefore, price that product to you. The automation within our system. It's as simple as just a release that says, "No, I want this to be 75% of its normal size. And it will run through automated cutting, processing and welding is all robotically done within our factory. So no cost impact, no real impact on a process perspective, just providing the best application for that given customer.

I'm kind of smiling a little bit because Vertiv had a really horrible result in the fourth quarter. And one of the long poles in the tent from a supply perspective was the fan. And we were kind of starting -- I'm an HVAC guy, I'm like kind of struggling like it's a fan, like can't -- isn't this something like there's a thing you screw the fan on and it spins around, right? But what you're saying is for this application, that there -- it sounds like it's almost like a part of an aircraft engine or something that's like that needs to be very finely...

It is tailored to that degree. Now not to pick on Vertiv, but Vertiv instills both purchased their fans from a German manufacturer that has extraordinarily long lead times, it's 70 weeks and allocation limitations. We manufacture our own. We don't have that limitation.

So I'm curious why did you guys, as a company, who made this decision a long time ago maybe made a difference, maybe it didn't, but it sure has a made a difference now.

It has always made a difference. So one of the founders, his partner, Dave Benson, my original path crossing with Dave Benson goes back 30 years ago, and he was with PACE company in Portland, Oregon, and PACE always manufactures their own fans. So his heritage where he grew up in the manufacturing side of the business was we manufacture our fans. So this was always attractive to me. I've always known that about Dave Benson, he has prowess with manufacturing fans and how he utilized that to differentiate himself in his whole product offering because in these 8,760 hours a year that they're operating, the fan system is the dominant energy user of the HVAC system, more so than the chillers. And so being able to optimize that specifically for that application is a huge advantage. Then the next thing was when we acquired the company, AAON had been purchasing around 35,000 to 40,000 fan wheels annually for our legacy business, and we saw their expertise as a way to leverage us to manufacture our fan wheels. So now we are fast-forward just a few months, we are putting in place the manufacturing of our fan wheels for all AAON equipment across the whole portfolio.

Interesting. What else -- is there anything else out? I mean the fan sounds like that's a big deal. Anything else outside the fan specifically that is -- that sounds like a big differentiator, is a differentiator for you guys?

Yes, definitely, I mean, for both data center cleaner market that is by far the fan being one of the huge pieces of that we in-source We also -- I mean, much like AAON, our objective is to minimize the kind of necessity to go outside of the company for as much as we can. So a lot of products in the data center market, where we're doing evaporative coolers, a variety of our competitors will actually buy out evaporative cooling portions of an area of the unit. Within our system, we control that, we build that. We'll buy the physical media, but essentially, we want to be able to control that entire manufacturing process. And again, it's from a cost perspective, from a control of lead time perspective, and also because a lot of these solutions where we are trying to condense a unit to maximize cooling density within given application. Custom building, it means we can really fine-tune its integration into the cabin itself and produce the highest cooling density possible.

How much of a cost advantage do you think you have versus -- I mean they make really good margins. They -- or before the fourth quarter, they had very good margins, like 20% plus or something around that. How much of a cost advantage do you think you have? Or do you have a cost advantage? I'm sure you should, if you...

We are certainly cost-competitive across the board. I mean those are -- the 2 you mentioned are Silent-Aire and Vertiv, they are the 2 largest competitors we face on a daily basis within the data center market. And we're basically on par with each other from a price point, kind of vast majority of applications. There are some benefits, obviously, of manufacturing locations for some of Vertiv plants compared to where we're manufacturing from a labor force perspective. But we do make strong margins comparable within the AAON margins that have historically been reported.

And anything about on Silent-Aire that's different than what Vertiv does and stocks do. We hadn't seen them before. JCI bought them and we haven't really -- it was last fall. So we haven't -- we haven't been able to like watch -- just trying to, again, not asking you to knock competitor just kind of like what the differences are? What's the advantages of your product versus those?

I want to get it in this way. We were analyzing JCI's purchase of Silent-Aire and trying to use that as a comp for what we were going to pay for BasX. We were given some pretty good intelligence through our agent, which happened to be JPMorgan to help us buy BasX. And we were given some very good intelligence and to differentiate what that business was from what we were buying. And it was reported to us that Silent-Aire purchases a high percentage content of their product and assembles it. That they're not a huge manufacturer, they're a huge assemblers.

Kind of a system integrator or maybe a little more of a -- or little more up the stream?

They don't make their fans. They don't make their coils. A lot of these components, they don't make that we do, BasX does, AAON does, and they buy these things and then they assemble them. And this has been a huge variability in their profit profile over the years that we were given information on what their profit was. It was very cyclic, and it had to do with purchase price of those components is the way it was described to us.

I got to believe that being a part of JCI could help that. I mean, given all their purchasing and how much they manufacture and assemble.

I think that was a very wise decision for JCI to purchase them. I think it was a good opportunity for JCI. I have a lot of friends at JCI. Back in my days when I was in the sales channel, I represented JCI. So I know those people quite well. I have a lot of admiration for a lot of them. So I think that was a very good deal. I think that we bought a company that's 1/10 the size of Silent-Aire. And I think in 5 to 10 years, we might be pulling up even with them.

Got it. Interesting. On the kind of moving down the P&L to more of the bottom line, you guys are putting through -- everybody's putting through a ton of price, how are you seeing inflation so far? And do you need another bite at the apple when it comes to price at some point? I think you're doing another one in March, I believe.

Announced one just a couple of weeks ago. 7% goes into effect at the end of this month. We did 8% that went into effect January 1. We didn't slow bookings down at all, January 1, I was shocked, not just to pull forward, but historically, after a price increase, we have somewhere around 50 to 52 days of depressed bookings because people pulled forward. We didn't have that. January bookings were highest rate that we'd ever seen in January, February bookings, highest rate we've never seen in February. And we didn't announce this price increase until like the last day of February. So it wasn't pull forward as a result of that. We've not yet seen a pull forward. So the bookings are just very, very strong for us. Now our sales channel is telling us that a huge opportunity is generated by our lead times. Us having the most attractive lead times in the industry is providing them a lot of opportunity. They're telling...

What are those -- where do those lead times stand today?

Well, if you look across the board, it's in the 10- to 12-week range. Specific products, some are less and some are more, but the core of the business -- of the legacy business is 10 to 12 weeks. We have...

And is that normal?

That's probably 2 weeks longer than normal or 8 to 10 is normal. But with the strong bookings, I mean, I'm not the least at embarrassed to say I'm 10 to 12 as opposed to 8 to 10. especially when the majority of my competitors are 30 -- 25, 30, 40. I had one competitor that told me face-to-face the other day. He was 50 weeks. That...

Is that Lennox?

Yes, it is.

Well, they've been -- I mean, they've been pretty public about the challenges...

Right. They're not taking any more 2022 order. Anything you order now is a 2023 delivery, right now. Yes. And I -- we're still delivering in 12 weeks. So we do have 2 or 3 customers that have scheduled out some deliveries beyond that. And what they have allowed for us is we said, okay, you get it in, you get a place in production, you get your slot, but your pricing is going to be the pricing that's in effect in accordance with that. So we don't have a lot of flexibility in repricing backlog, let's say, but we do have -- I think there's 3 national account type customers that wanted to make sure they had their spots so that their facilities were opened on time that they've gone ahead and scheduled some of that now. But the pricing is in effect at the time that we ship it.

And do you -- is that March price increase enough to hit what you guys have guided the Street too? Or is it -- or do you need another bite at the apple after that to cover the inflation you're seeing?

No, I think we're good. We had a price increase September 1. It was 5%. January, we saw 76% of that on the plant floor. February, we saw 80%, how much?

84%.

84% of that on the plant floor. So we're yet to see 100% of our 5% price increase from September on the plant floor, getting close. Now the January price increase, I don't expect to see on the plant floor until probably July. But the margin profile that I've seen in January and February reflects most of that 5% price increase has put me up in my historic gross margin range. So I'm pretty much on target. And all my pricing pressures are already into that equation. So I'm looking at Q1 having back in our target range, the 28% to 32%, probably towards the lower end of that. And then Q2, we're going to have more price increasing coming on board -- pricing on our plant floor coming on board. So I expect for Q2 to have a little bit of margin expansion. But Q3, I look for margin expansion to be very, very nice and finishing out the year. So for the year, our projections are that we'll be between bull's eye center target 30% margin or greater, as a consolidated...

So if you roll into next year and commodities come down a little bit, maybe steel rolls down a little bit.

Steel already has.

I mean, will you make the decision to kind of strategically either invest or maybe go after a couple of accounts that you'd like to bring in-house? Or do you think that there is potential for kind of an industry? I don't want to use the term, but a big -- a nice margin gap up for the industry.

There's historical perspective on this. In 2013, leading up to that, there had been some price increases, and then there was some retraction in materials prices right in that range. And that allowed the entire industry, AAON, in particular, to have margin expansion. There was very little pressure on the pricing. So it did stick. So they did allow a period of time there, probably '14 and '15 of those 2 full years that there were better margins as a result of that. Now what we've seen right now is we've seen steel already crested good amp. I signed contracts for steel throughout my needs for 2022 at about 25% better than I was paying not too far in the rearview mirror. However, I'm not getting any relief on utilities, on wage rates, on refrigerants up 500% over a year ago. We're now paying $17 plus a pound for that. And it was less than $5, it was $4 and something. We're not going to see any relaxing in components that we purchased like compressors. Emerson is who we get probably 80%, 85% of our compressors from, they're not going to roll back their prices. So I think most of my price inputs are going to stick. The 3 kind of raw materials that may have some movement to them. We've already seen steel. Stainless steel is currently at about the highest level. I think the Ukraine situation and nickel coming from there is influencing that. Copper is at about the highest level. Copper has historically gone up and down quite a bit when it gets to this level. We're now paying in the range of $6 a pound for technical tubing. I look for that to possibly subside a little. But I don't look for anything huge to go down. Does that answer that question?

Absolutely, answered very well. I think we're out of time. But guys, thank you so much for coming and looking forward to continuing to watch the story unfold.

Thank you. I look forward to you covering us.

Yes, I wish it was that easy.